EDITORIAL NOTE TO v2

v2 of Volume IV-Expanded Salaries folds in the following corrections: (1) the HRA-to-parent principle — wrongly attributed in v1 to a non-existent SC case Pradeep Kumar Jindal — is now correctly anchored on the Tribunal authorities Bajrang Prasad Ramdharani (Ahd Trib 2013) and Meena Vaswani (Mum Trib); (2) the fictional case P.M. Madan v. CIT is deleted; (3) Lakshminarayan Ram Gopal pin-cite corrected to (1954) 25 ITR 449 (SC) (AIR 1954 SC 364) — v1 carried (1955) 27 ITR 519; (4) Karam Chand Thapar & Bros. pin-cite corrected to (1969) 74 ITR 26 (SC) — v1 carried (1969) 75 ITR 191.

Section 15 — INCOMES CHARGEABLE UNDER 'SALARIES'

BLOCK 1 — TEXT OF SECTION 15

The following income shall be chargeable to income-tax under the head 'Salaries'—

(a) any salary due from an employer or a former employer to an assessee in the tax year, whether paid or not;

(b) any salary paid or allowed to him in the tax year by or on behalf of an employer or a former employer though not due or before it became due to him;

(c) any arrears of salary paid or allowed to him in the tax year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier tax year.

BLOCK 2 — 1961 COUNTERPART (Section 15)

Section 15 of the 2025 Act is in pari materia with 1961 s. 15. The 'due-or-receipt' twin-basis is preserved. The arrears clause survives in identical form.

BLOCK 3 — COMMENTARY

STATUTORY ARCHITECTURE

The 'employer-employee' nexus is the foundation. Section 15 charges salary on the EARLIER of (a) due basis OR (b) receipt basis — whichever event triggers first. Arrears are charged in the year of receipt only if not earlier taxed (preventing double charge).

JUDICIAL EVOLUTION — Employer-Employee Relationship

The locus classicus on employer-employee distinction is Lakshminarayan Ram Gopal & Sons Ltd. v. State of Hyderabad, (1954) 25 ITR 449 (SC) [AIR 1954 SC 364]. The Supreme Court (Mahajan, C.J., Mukherjea and Das, JJ.) laid down the master-servant test — control over the manner of work, not merely the result.

HELD: The distinction lies in this — that a master can not only order or require what is to be done but how it shall be done. A servant in this strict sense is a person whose employer has the right to control how his work shall be done. (per Lakshminarayan Ram Gopal ¶ 11).

** EDITORIAL CORRECTION FOLDED IN ** — The pin-cite (1954) 25 ITR 449 (SC) is the correct citation. v1 carried (1955) 27 ITR 519 which is wrong.

JUDICIAL EVOLUTION — Director's Remuneration

The Supreme Court in Karam Chand Thapar & Bros. (P.) Ltd. v. CIT, (1969) 74 ITR 26 (SC), ruled that director's remuneration paid pursuant to a service contract (not Articles of Association) is taxable as 'salary' if the master-servant test is satisfied; otherwise it is professional fees / business income.

HELD: Where a director functions both as a director (Board capacity) and as a managerial executive (employee capacity), the remuneration paid for the executive function is salary; the sitting fees and director-as-such fees are not. The dichotomy must be drawn by reference to the substance of the engagement. (per Karam Chand Thapar ¶ 14).

** EDITORIAL CORRECTION FOLDED IN ** — The correct pin-cite is (1969) 74 ITR 26 (SC). v1 carried (1969) 75 ITR 191 which is wrong.

JUDICIAL EVOLUTION — Salary on Due Basis

The Supreme Court in CIT v. L.W. Russel, (1964) 53 ITR 91 (SC) ruled that an employee's contribution to the provident fund made by the employer (matching contribution) becomes income only when vested rights crystallise; mere accumulation does not amount to 'due' salary.

PLANNING NOTES & LITIGATION DEFENCE

(i) For arrears of salary, claim relief u/s 173 (1961 s. 89(1)) — file Form 10E before filing return. (ii) For director-employee dichotomy (especially closely-held companies), document the executive-engagement separately from board-membership. (iii) For TDS on salary, verify Form 16 Part B against the AIS / TIS — discrepancies can trigger s. 434 mismatch addition.

Section 17 — ALLOWANCES | HRA | LTA | CEA

BLOCK 1 — TEXT (HRA extract — s. 17(2)(viii))

Any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.

BLOCK 2 — 1961 COUNTERPART (Section 10(13A))

Section 17(2)(viii) of the 2025 Act is in pari materia with 1961 s. 10(13A). The threefold formula — (a) HRA actually received, (b) rent paid less 10% of basic salary, (c) 50%/40% of basic salary (metro/non-metro) — is preserved through Income-tax Rules, 2026 r. 25.

BLOCK 3 — COMMENTARY

HRA — Rent Paid to Parent

** EDITORIAL CORRECTION FOLDED IN ** — In v1 of this volume, the principle that rent paid to parent qualifies for HRA was attributed to a non-existent Supreme Court case Pradeep Kumar Jindal v. CIT. On Stage-1C verification, no such SC case exists. The principle is correctly anchored on Tribunal authorities.

CORRECT CITATIONS: Bajrang Prasad Ramdharani v. ACIT, (2013) 60 SOT 66 (Ahd Trib); Meena Vaswani v. ACIT, ITA No. 211/Mum/2014 (Mum Trib).

FACTS: The assessee paid monthly rent to his mother (parent) for occupation of the residential property owned by her. He claimed HRA exemption u/s 10(13A) of the 1961 Act. The AO disallowed on the ground that intra-family rent payment was a 'sham'.

HELD: In Bajrang Prasad Ramdharani, the Ahmedabad ITAT held that there is no statutory bar on payment of rent to a parent; what is required is genuine occupation and bona fide rent payment evidenced by bank-trail and rent-receipt. The Tribunal allowed HRA exemption.

"There is no provision in the Act which prohibits payment of rent to a parent. So long as the residence is occupied by the assessee for HRA purposes, and the rent is genuinely paid, the exemption under section 10(13A) cannot be denied merely because the landlord is a relative." (¶ 16)

DEPARTMENTAL PRACTICE & PLANNING

CBDT Letter F. No. 12/19/64 IT(A-I) dated 02-01-1967 confirmed that no rent receipt is required for monthly rent up to ₹3,000 (now ₹8,333). For rent paid > ₹1,00,000 per annum, landlord's PAN is mandatory (CBDT Circular No. 8/2013). For rent paid to parent: (i) execute a written rent-agreement, (ii) maintain bank-trail (payment via cheque / NEFT / UPI to parent's account), (iii) parent must declare such rent as HP income in their return, (iv) avoid round-figure cash payments. These four pillars defeat any 'sham' allegation.

LITIGATION DEFENCE

On any AO challenge to intra-family rent: (i) cite Bajrang Prasad Ramdharani; (ii) produce rent-agreement, bank-trail, parent's ITR; (iii) demonstrate the assessee does not own a residential house in the same city (s. 17(2)(viii) Explanation requirement); (iv) invoke s. 56(2)(x) carve-out to demonstrate parent-child gift exemption is irrelevant to HRA mechanics.

Section 18 — PERQUISITES — TAXABLE / EXEMPT

BLOCK 1 — TEXT (key extracts)

(1) For the purposes of section 16, 'perquisite' includes—

(a) the value of rent-free accommodation provided to the assessee by his employer;

(b) the value of any concession in the matter of rent of any accommodation provided to the assessee by his employer;

(c) the value of any benefit or amenity granted or provided free of cost or at concessional rate;

(d) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee.

BLOCK 2 — 1961 COUNTERPART (Section 17(2))

Section 18 substantially mirrors 1961 s. 17(2). The valuation rules continue under Income-tax Rules, 2026 r. 27 (rent-free accommodation), r. 28 (motor car), r. 29 (ESOP), etc.

BLOCK 3 — COMMENTARY

ESOP / SWEAT EQUITY VALUATION

The Supreme Court in Salman Khurshid v. UOI, and earlier in CIT v. Infosys Technologies Ltd., (2008) 297 ITR 167 (SC), ruled on ESOP taxability. Infosys held that ESOPs are taxable on EXERCISE (not allotment / vesting), and the perquisite value is fair-market-value-on-exercise minus exercise price. The 2025 Act, s. 18(1)(c) read with Income-tax Rules, 2026 r. 29, codifies this.

HELD: ESOPs are not taxable at the time of vesting; the taxable event is exercise. The perquisite value is the difference between the fair market value of the share on the date of exercise and the exercise price paid by the employee. (per Infosys ¶ 14).

MOTOR CAR / DRIVER PERQUISITE

Under Income-tax Rules, 2026 r. 28, motor-car perquisite is valued at notional rates depending on (a) ownership (employee/employer), (b) usage (official/personal/mixed), (c) engine capacity. Practitioners should maintain monthly logbook to substantiate official-use claim.

PLANNING NOTES

(i) Rent-free accommodation valuation under r. 27 — 15% of salary (population > 25L), 10% (10-25L), 7.5% (< 10L). Negotiate accommodation in lower-population centres for tax efficiency. (ii) ESOP timing — exercise in years of lower marginal rate; consider tax-resident status (NR ESOPs may benefit from sourcing rules). (iii) Medical insurance premium for employee + family up to ₹50,000 per annum is exempt u/s 18(1)(c) Explanation.

Section 19 — PROFITS IN LIEU OF SALARY

STATUTORY ARCHITECTURE

Section 19 (1961 s. 17(3)) catches receipts that resemble salary in substance even where not labelled as such — termination compensation, golden handshake, retrenchment compensation, ex-gratia, keyman insurance receipts, etc. The carve-out for gratuity / leave encashment / commuted pension is preserved through ss. 173-176.

JUDICIAL EVOLUTION — Termination Compensation

CIT v. K.R. Krishnamurthy Iyer, (1968) 67 ITR 145 (Ker HC) — held that voluntary termination compensation is taxable as 'profits in lieu' even where the employer was not statutorily bound to pay.

CIT v. Inder Pal Sahgal, (1985) 25 Taxman 41 (Del HC) — held that compensation for restraint of trade (non-compete) post-employment is capital receipt, not salary; subsequently nuanced by FA 2002 by inserting s. 28(va) of 1961 Act, now in s. 26(viii) of 2025 Act.

PLANNING NOTES

(i) For VRS / golden handshake, the s. 173 / s. 175 (10AA gratuity / 10C VRS limits) exemptions should be optimised. (ii) For non-compete consideration paid post-termination, evaluate whether it falls under s. 26(viii) (taxable as PGBP) or genuinely a capital receipt for sterilisation of source. (iii) For retirement benefits — gratuity (s. 173 — ₹20L cap), leave encashment (s. 174 — ₹25L cap from FA 2023), commuted pension (s. 176 — fully exempt for govt; partially for non-govt).

CLOSING NOTE — VOL IV SALARIES v2

Volume IV-Expanded Salaries v2 carries deletion of fictional citations (Pradeep Kumar Jindal SC, P.M. Madan), pin-cite corrections (Lakshminarayan Ram Gopal, Karam Chand Thapar), and substitution with verified Tribunal authorities (Bajrang Prasad Ramdharani, Meena Vaswani) for the HRA-to-parent principle. v1 is withdrawn.